Master trusts that are backed by providers regulated by the FCA and Prudential Regulatory Authority should be exempt from governance requirements stipulated in the forthcoming Pension Bill says Aegon.
As currently drafted, the Pensions Bill proposes that the ‘scheme funder’, the body set up to hold the master trust, would have to be set up as a separate legal entity and carry out activities solely related to the master trust.
The Bill says the scheme funder would be responsible for underwriting the cost of running the scheme, but, says Aegon, regulated pension firms are already required to meet these costs. Aegon argues that where the master trust is currently backed by a FCA / PRA regulated provider, which already sets capital adequacy standards, members are already well protected. The backing of a standalone scheme funder that has only been subject to five TPR governance tests would weaken member protection, it argues.
Aegon head of pensions Kate Smith says: “The whole purpose of the Pensions Bill is to provide greater protection for members of master trusts, but one of the proposed new rules could weaken rather than strengthen member protection. Where a master trust is run by a provider subject to FCA and PRA rules, members benefit from tough regulations, including robust capital adequacy standards. The ‘scheme funder’ proposals will force regulated providers to set up separate legal ‘scheme funder’ entities for their master trusts, potentially moving members out of the protection of FCA/PRA regulations.
“Requiring a separate ‘scheme funder’ also removes the benefits of a diversified model, where financial sustainability can be enhanced by providing a range of offerings including contact-based pensions, investment and savings plans and retirement income solutions.
“A far more sensible approach, offering superior customer protection, would be to exempt FCA / PRA regulated firms from the new ‘scheme funder’ proposals. The Pensions Regulator could then work with FCA and PRA to make sure master trust members are appropriately protected. For master trusts already offered by financially sound firms, the separate ‘scheme funder’ requirement is a sledgehammer to crack a nut.”